Singapore: Fiscal Incentives
All Economic Sectors
In Singapore's 2004 budget it was announced that the first $100,000 of normal chargeable income for new companies (with less than 20 shareholders) would be exempt from tax in each of their first three years of assessment, beginning YA 2005. From YA 2008, a 50% deduction was introduced on the next $200,000 of normal chargeable income for such companies in addition.
In 2012, 75% of the first SGD10,000 of income and 50% of the next SGD290,000 are exempt from tax.
The Technopreneur Investment Incentive has been expanded in scope and renamed the Enterprise Investment Incentive (EII). Investors in start-ups awarded the EII will enjoy tax deductions for any losses they incur in these start-ups. To help SMEs make greater use of intellectual property, the withholding tax on royalty payments was reduced from 15% to 10%.
Regional/International Headquarters Awards (HQ Awards)
To qualify for this scheme the company must have a sizeable network of overseas companies in the south-east Asian region and be well established both in its home country and in its industry. The HQ must provide "qualifying" management, treasury or other approved headquarter related services to its subsidiaries, associated or related companies in other jurisdictions. In order to be eligible to apply for incentives under the Headquarters Programme, the applicant company should meet the general criteria below:
- The applicant should be, or belong to a group that is, well established in its respective business sector or industry and has attained a critical size in terms of equity, assets, employees and business share.
- The applicant should be the nerve centre in terms of organisation reporting structure at senior management levels for its principal activities with clear-cut management and control for the activities.
- The applicant should have a substantial level of headquarters activities in Singapore that may include:
- Strategic Business Planning and Development
- General Management and Administration
- Marketing Control, Planning and Brand Management
- Intellectual Property Management
- Corporate Training and Personnel Management
- Research, Development and Test Bedding of New Concepts
- Shared Services
- Economic or Investment Research and Analysis
- Technical Support Services
- Sourcing, Procurement and Distribution
- Corporate Finance Advisory Services
- The personnel employed by the applicant for its headquarters operations should be based in Singapore, and would include management, professionals, technical personnel and other supporting staff.
Currently (2012), the Regional Headquarters Award offers a concessionary tax rate of 15% for up to 5 years on incremental qualifying income from abroad. If applicant company satisfies all the minimum requirements by Year 3 of the incentive period, it will enjoy the 15% concessionary tax rate for an additional 2 years on qualifying income.
The applicant company must satisfy all of the following minimum requirements by the milestone indicated and maintain till the end of the incentive period:
- paid-up capital of SGD0.2 million and SGD0.5 million by the end of Year 1 and Year 3 of the incentive period respectively.
- 3 he adquarters services to network entities in 3 countries outside Singapore by the end of Year 1. Network entities refer to any entity within the group, including subsidiaries, sister companies, branches, joint ventures and representative offices as well as franchises.
- 75% skilled staff throughout the incentive period. Skilled employment refers to at least an NTC2 Certificate qualification.
- additional 10 professionals in Singapore by the end of Year 3. Professionals refer to at least a diploma qualification.
- average remuneration per worker of SGD100,000 per annum for the top 5 executive designations by the end of Year 3.
- additional SGD2 million in annual total business spending in Singapore by the end of Year 3. Total business spending refers to total operating costs minus the costs of work subcontracted outside Singapore, royalties and know-how fees paid overseas, raw materials, components and packaging.
- additional SGD3 million in total business spending cumulatively for the first 3 years of the incentive period.
- The level at Year 3 – Year 0
- The level at (Year 3 + Year 2 + Year 1) – 3 x (Year 0)
Finance And Treasury Centres (FTC)
The Tax Incentive Scheme for Finance and Treasury Centres, introduced in 2004, was designed to encourage multi-national corporations to use Singapore as a base for conducting treasury management activities.
The scheme provides a concessionary tax rate (10% at the time of writing) on all fee income received by the FTC from its subsidiaries, related companies and associates outside Singapore (approved network companies) for the provision of qualifying FTC services and qualifying activities conducted on own account, and on interest, dividend and gains from transactions in foreign currency denominated stocks and bonds, foreign exchange trading, interest rate swaps, financial futures and options.
There is exemption from withholding tax on interest payments on foreign currency denominated borrowings by the FTC from overseas banks and approved network companies, provided the funds raised are used for the conduct of qualifying FTC activities. Borrowings from network companies exclude funds borrowed by network companies from sources other than banks.
The FTC must meet the following minimum criteria: Annual total business spending (TBS) of SGD750,000; 3 professional staff employed by the FTC; and 3 qualifying FTC services to 3 or more network companies.
Approved Royalties Incentives
In certain circumstances full or partial exemption can be obtained from the payment of withholding taxes on royalties, technical assistance fees and contributions to research and development costs. For the exemption to apply the payments must be made to non-residents and there must be no resultant increase in the liability to tax by the non-resident person in his country of residence. In default of this exemption the standard rate of withholding taxes levied on such activities is imposed, which generally speaking can only be reduced by the provisions of double taxation treaties.
Accelerated Depreciation Allowances
Accelerated depreciation allowances enable a company to reduce its taxable profits, strengthen its asset base and improve its cash flow. The normal rate of annual depreciation for capital expenditure at the time of writing is an initial 20% allowance with the balance being written off at the rate of between 5-20% per annum.
However in certain circumstances accelerated depreciation allowances are available which allow companies to set off 33% per annum of the cost of all plant and machinery for each of 3 years subsequent to purchase. In the case of prescribed automation equipment, robots and certain environmental related equipment (e.g. energy saving equipment) 100% of the assets cost can be set off in the first year.
Interest Payments to Non-Residents
The general rule is that withholding tax (15% at the time of writing) is deducted from interest repayments made to non-residents without Singapore activities. Interest repayments may be reduced in the following circumstances:
- Double Taxation Treaty: Where the non-resident resides in a jurisdiction with which Singapore has signed a double taxation treaty jurisdiction.
- Approved Loans: Interest payments on approved loans made by foreign institutions may be exempt from withholding taxes. Approved loans are assessed on a case by case basis and the exemption or reduction depends on the amount, terms, purpose and use of the loan in Singapore.
- Qualifying Debt Securities: Interest payments on such instruments may also be exempted from withholding taxes.
- "Approved" Asia Dollar Bond Deposits: So long as these bonds are held by approved banks and paid to non resident holders who do not carry on business in Singapore and have no permanent establishment there they are exempt from withholding taxes.